(Edgar Glimpses Via Acquire Media NewsEdge) You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with the "Selected Consolidated
Financial Data" and our consolidated financial statements and the related notes
thereto that appear elsewhere in this Annual Report on Form 10-K. In addition to
historical information, the following discussion and analysis includes
forward-looking information that involves risks, uncertainties, and assumptions.

Actual results and the timing of events could differ materially from those
anticipated by these forward-looking statements as a result of many factors,
including those discussed under "Risk Factors" elsewhere in this Annual Report
on Form 10-K. See also "Forward-Looking Statements" included elsewhere in this
Annual Report on Form 10-K.

Overview
We are a development stage medical device company working toward
commercialization of our proprietary technologies to provide minimally invasive
medical devices for the treatment of conditions in the human body. We are in the
later stages of developing and clinically testing bioresorbable drug-eluting
coronary stents. We refer to bioresorbable stents as "scaffolds" because they
are not permanent devices like metal stents that are commonly used today. In
clinical use, a scaffold is guided by x-ray by an interventional cardiologist
during a minimally invasive surgery to a coronary artery location with a
delivery catheter system, whereupon it is deployed to restore blood flow to the
artery and medicate the artery to prevent further blocking, or restenosis. Our
products are designed to offer full x-ray visibility, clinically relevant
sizing, and a controlled and safe resorption rate. The scaffolds we are studying
in clinical trials combine our proprietary scaffold design with a proprietary
polymer that is metabolized and cleared from the body over time. Our clinical
studies are designed to evaluate the safety and performance of our scaffolds,
with primary patient evaluations at one, nine, and/or 12 months; annual
follow-ups are performed thereafter until five years after implant. Our current
plan is to apply for regulatory approval to sell commercially outside the United
States when we have gathered and analyzed the initial set of 12-month data from
our current clinical studies, which we expect to be late in 2014 or early 2015.

We will commercialize our first product(s) when, and if, we receive the CE Mark
and any other required regulatory approvals.

We believe that due to the risks and limitations associated with commercially
available metal stents, bioresorbable scaffolds will be the next major advance
in coronary stent technology. Because we have designed our scaffolds to provide
the same benefits as traditional metal stents, but with the additional benefit
of eliminating the need for a permanently implanted device, we believe that if
we are able to complete development and clinical testing of our scaffolds, if we
are able to successfully implement manufacturing processes and procedures, if we
receive approval to sell commercially by the relevant regulatory authorities,
and if we are able to execute our sales and marketing strategies effectively, we
believe our products would enable us to compete effectively in the worldwide
stent market. Worldwide revenues from coronary stent sales approximated
$4.4 billion in 2013.

45
--------------------------------------------------------------------------------
Table of Contents
We have invested significant time and funds in the development of our
bioresorbable scaffolds and have performed significant scientific research,
engineering development, and testing in laboratory and preclinical studies. We
have developed, tested, and selected the polymer formulation, tested and
selected the anti-restenotic drug and coating process, created and iterated the
device design, and identified and implemented methods and processes to produce
and test the scaffold. We designed and performed extensive preclinical tests
that ranged from bench and engineering studies to in vitro and in vivo
laboratory studies. As part of the development, in 2007 we enrolled patients in
a small clinical study that proved the viability of our technology while
confirming the areas needing further development and we have been advancing the
product design and features since. We believe the results of these and
subsequent tests and studies show the technology to be safe and effective and
that it is suitable for human clinical studies.

We began clinically testing the ReZolve family of scaffolds with the initiation
of a pilot study that enrolled 26 patients between December 2011 and July 2012
in Brazil and Europe. During the period March 2013 through December 2013 we
enrolled an additional 111 patients in a clinical study of our ReZolve2 scaffold
in Australia, Brazil, Europe, and New Zealand. Data from the ReZolve2 patients
will be gathered, evaluated, and, if acceptable, used to apply for European CE
Marking. When, and if, we receive CE Mark approval we will evaluate how best to
implement our sales and marketing strategies for commercialization in Europe and
various other countries that rely on the CE Mark. While our ReZolve2 scaffold
could be approved for sale in 2015, our efforts to generate substantial revenue
from our scaffold products and achieve positive cash flows from our operations
will take several years, even if our clinical results are favorable.

Following initiation of clinical trials with our ReZolve2 scaffolds in 2013, we
researched and performed feasibility work on our "next" generation of scaffolds.

We expect these follow-on scaffolds to contain all the beneficial features of
our ReZolve scaffolds, while providing advancements in deliverability, profile
and hoop strength, and reduced manufacturing costs. As a result of our extensive
experience developing and testing bioresorbable scaffolds, we began preclinical
testing of this next generation device in early 2014 and aim to possibly
initiate clinical studies later in 2014. When, and if, this next generation
scaffold is fully developed and tested, and we have acceptable clinical data, we
plan to apply for its CE Marking. Following regulatory approval to commercialize
the next generation scaffold, if and when such approval is received, we would
evaluate our sales and marketing strategies, including the markets, sales
volumes, and selling prices of ReZolve2, if any, and distribute and sell our
products to maximize revenues and profits.

In order to produce quantities of our scaffold large enough to accommodate
commercial needs, when that time arrives, we will need to scale up our
manufacturing processes and expand our capabilities to allow for such things as
additional scaffold sizes. We developed plans and began implementation of the
methods and processes for such manufacturing scale-up, including work on the
product sizes in 2013. We will continue implementation of manufacturing
preparedness as we approach commercialization.

During the course of our product development and testing, we have invented,
co-invented, and licensed a portfolio of proprietary technologies. Our
design-related technologies have been invented by our employees and consultants
and our materials-related technologies have been either invented by our
employees or licensed from, or co-invented with, Rutgers, The State University
of New Jersey. We consider our patent portfolio to be significant and have
invested considerable time and funds to develop and maintain it. Our goal is to
continue to perform feasibility tests on additional technologies in our patent
portfolio as our resources allow and, if feasibility is proven, determine a
course of development for additional products.

During our development efforts, we have also pursued, tested, and abandoned
development programs that we determined would not lead to feasible products or
for which a product could not be developed in a timeframe that would allow for
reasonable commercialization. The largest of these abandoned programs centered
on development of a thin metal stent technology for use in small blood vessels.

Although abandoned in 2002 after approximately $13 million had been invested and
used, this technology became the basis for the "slide & lock" mechanism we are
currently using. Additionally, we licensed a potential anti-restenotic drug in
2001 with the intent to develop it for use as a stand-alone drug or as a
complement to our scaffold. Although the drug's development was abandoned in
2004 after we had invested approximately $6 million, the knowledge we gained
from that program was used in our development of the drug coating for the
ReZolve scaffolds. We also formed a wholly owned subsidiary in Germany in 2007
to facilitate our clinical trials and our planned commercialization of products;
we have not used this subsidiary yet for any operating activities.

46
--------------------------------------------------------------------------------
Table of Contents
We have performed all of our research and development activities from one
location in San Diego, California. As of December 31, 2013, we had 84 employees,
a majority of which are degreed professionals and seven of whom are PhDs. We
leverage our internal expertise with contract research and preclinical
laboratories, outside catheter manufacturing, and other outside services as
needed. We have three clean rooms and multiple engineering and chemistry labs at
our facility, in addition to our corporate and administrative office. We are ISO
certified to the medical device standard 13485:2012 and intend to maintain the
certification to support our commercialization plans.

We have not yet developed a product to a saleable stage and we have not,
therefore, generated any product or other revenues. Our development efforts have
been funded with a variety of capital received from angel investors, venture
capitalists, strategic partners, hedge funds, and the proceeds from our IPO.

Since our inception, we have received approximately $153.9 million in equity
proceeds and $28.5 million from issuance of notes payable (such notes payable
were converted to common stock upon our IPO in December 2010). As of
December 31, 2013, we had approximately $20.7 million in cash and investments
available for operations. We have incurred substantial losses since our
inception; as of December 31, 2013, we had accumulated a deficit of
approximately $201.5 million.

The above circumstances raise substantial doubt about our ability to continue as
a going concern. We are placing significant effort into completing a financing
during the first half of 2014 that would provide adequate capital resources to
allow us to obtain data from our clinical trials, apply for the CE Marking, and
begin commercial product sales, assuming we receive the regulatory approval to
do so. There can be no assurance that we will be successful in raising
additional capital or that such capital, if available, will be on terms that are
acceptable to us. If we are unable to raise sufficient additional capital, we
may be compelled to reduce the scope of our operations and planned capital
expenditures or sell certain assets, including intellectual property assets.

We expect our losses to continue for the next several years as we continue our
development work, clinical studies, and preparations for commercialization and,
if these efforts are successful and we are able to obtain approval to sell our
products, we expect to commence product sales thereafter. In order to
successfully transition to profitable operations, we will need to achieve a
level of revenues and product margins to support the Company's cost structure.

Until such time as we generate positive cash flow, we plan to continue to fund
our losses from operations and capital needs by utilizing our current cash and
investments and by raising additional capital through equity or debt financings.

Key Components of our Results of Operations
Since we are still in a pre-revenue stage and our activities are focused on
further developing and testing our bioresorbable coronary scaffold with the goal
of commercially selling it, as well as performing minimal research and tests to
determine the feasibility of other product possibilities, our operating results
primarily consist of research and development expenses, including costs to
perform clinical trials, and general and administrative expenses.

Research and Development Expenses: Our research and development expenses arise
from a combination of internal and external costs. Our internal costs primarily
consist of employee salaries and benefits, facility and other overhead expenses,
and engineering and other supplies that we use in our labs for prototyping,
testing, and producing our scaffolds and other product possibilities. Our
external costs primarily consist of contract research, engineering consulting,
polymer consulting and certain production costs, polymer lasing costs, catheter
system and anti-restenotic drug purchases, preclinical and clinical study
expenses, and license fees paid for the technology underlying our polymer
materials. All research and development costs are expensed when incurred.

Through December 31, 2013, we have incurred approximately $122.8 million in
research and development expenses since our inception, which represents
approximately 73 percent of our cumulative operating expenses. We increased the
level of our research and development activities in 2013 as we continued human
clinical trials, increasing the number of patients enrolled. We expect to
increase our research and development expense in 2014 as we continue development
of our next generation scaffolds and incur clinical costs on previously enrolled
and newly enrolled patients in our clinical studies. We also expect to incur
increasing expenses in the future for development of final manufacturing
processes and equipment as we prepare for commercialization and the development
and roll-out of our sales and marketing strategies as we near commercialization.

47
--------------------------------------------------------------------------------
Table of Contents
General and Administrative Expenses: Our general and administrative expenses
consist primarily of salaries and benefits for our executive officers and
administrative staff, corporate office and other overhead expenses, legal
expenses including patent filing and maintenance costs, audit and tax fees,
investor relations and other public company costs, and travel expenses. Although
our patent portfolio is one of our most valuable assets, we record legal costs
related to patent development, filing, and maintenance as expense when the costs
are incurred since the underlying technology associated with these assets is
purchased or incurred in connection with our research and development efforts
and the future realizable value cannot be determined. Through December 31, 2013,
we have incurred approximately $44.7 million in general and administrative
expenses since our inception, which represents approximately 27 percent of our
cumulative operating expenses. We anticipate that we will continue to invest in
patents at similar levels as we have in the past. Upon completion of our initial
public offering ("IPO") in December 2010, we began to expand our corporate
infrastructure including the addition of personnel and reporting systems, and
also began to incur public company reporting and other costs. We anticipate that
we will continue to expand our corporate infrastructure to support the needs of
being a public company and to prepare for commercial sales of our products,
which will increase our general and administrative expenses accordingly. We also
expect to begin to incur sales and marketing expenses toward the end of 2014 as
we prepare for product sales in the event we receive CE Marking.

Other Expense and Income: Historically, a majority of our non-operating
expenses arose from our notes payable. All the notes, along with the accumulated
accrued interest, converted into common stock upon our IPO in December 2010.

Through December 31, 2010, we recorded approximately $9.6 million of interest,
$11.1 million in repayment premiums, $13.3 million in loss on extinguishment,
and $2.3 million in interest income from note premium amortization, all in
accordance with accounting requirements. In conjunction with our notes payable,
we issued warrants to purchase preferred stock; these warrants were exercised
for cash and on a net issuance basis upon our IPO and none remained outstanding
thereafter. We recorded non-cash interest expense for the initial value of the
warrants and recorded gains and losses for subsequent changes in fair value of
the warrants for a total of $1.8 million in net expense through December 31,
2010. Concurrent with the completion of our IPO, all of our outstanding
convertible preferred stock and non-voting common stock converted to common
stock. We also issued common stock for cumulative dividends on our Series H
convertible preferred stock. A total of 22,419,771 shares of common stock were
issued from all the conversions, exercises, and dividends.

Since our inception, when we have had excess cash on hand we have invested in
short- and long-term high-quality marketable securities such as certificates of
deposit and U.S. Treasury Bills. Earnings from these investments are recorded as
interest income; through December 31, 2013, we have recorded a total of
approximately $1.4 million in such interest income.

Critical Accounting Policies and Significant Estimates
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States. The preparation of our
financial statements and related disclosures requires us to make estimates,
assumptions, and judgments that affect the reported amounts of assets,
liabilities, stockholders' equity, expenses, and the presentation and
disclosures related to those items. We base our estimates and assumptions on
historical experience and other factors that we believe to be reasonable under
the circumstances. We evaluate our estimates and assumptions on an ongoing
basis; changes in our estimates and assumptions are reasonably likely to occur
from period to period. Additionally, actual results could differ significantly
from the estimates we make. To the extent there are material changes in our
estimates or material differences between our estimates and our actual results,
our future financial statement presentation, financial condition, results of
operations, and cash flows will be affected.

While our significant accounting policies are described in more detail in Note 3
to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K, we believe the following accounting policies involve a
greater degree of judgment and complexity than our other accounting policies
and, therefore, are the most critical to understanding and evaluating our
consolidated financial condition and results of operations.

Research and Development Costs: We expense research and development costs as
incurred. Our preclinical and clinical study costs are incurred on a contract
basis and generally span a period from a few months to longer than a year. We
record costs incurred under these contracts as the work occurs and make payments
according to contractual terms. Until a contract is completed, we estimate the
amount of work performed and accrue for estimated costs that have been incurred
but not paid. As actual costs become known, we adjust our accruals. We expect
our clinical expense accruals to increase as we continue to initiate and enroll
patients in clinical trials. We expect to make estimates as to the work
performed throughout the term of these trials, each of which is expected to be
five years or longer. As these costs increase, if our estimates are inaccurate,
possible material changes to our accruals could be required, which could
materially affect our results of operations within any fiscal period. To date,
there have been no material changes in our research and development expense
estimates, including our estimates for accrued clinical costs.

48
--------------------------------------------------------------------------------
Table of Contents
Stock-Based Compensation: We have granted stock options to employees and
consultants for the purchase of common stock. These options generally have a
ten-year life during which the option holder can exercise at any time, they
generally vest over a four- or five-year service period, and their exercise
price equals the fair market value of our common stock on the date they are
granted.

For options granted to employees, we determine the amount of compensation
expense by estimating the fair value of each option on its date of grant and
then we amortize that fair value on a straight-line basis over the period the
employee provides service, which generally is four or five years, and record the
expense in our statement of operations as either research and development
expense or general and administrative expense based on the employee's work
classification. We estimate the fair value by using the Black-Scholes option
pricing model, which requires use of assumptions. The assumptions used represent
our best estimates, but these estimates involve inherent uncertainties. For the
model inputs, we use the market value of the underlying common stock, a
risk-free interest rate that corresponds to the vesting period of the option, an
expected life of the option ranging from 6.25 to 6.5 years, and an estimate of
volatility based on the market trading prices of comparative peer companies.

Additionally, we reduce the amount of recorded compensation expense to allow for
potential forfeitures of the options; the forfeiture rate is based on our actual
historical forfeitures and has ranged from approximately 2.4 percent to
5.3 percent. For options granted to consultants, we estimate the fair value at
each vesting and reporting date and record compensation expense in our statement
of operations based on the fair value during the service period of the
consultant, which is generally the four- or five-year vesting period. We
estimate the fair value by using the Black-Scholes option pricing model with the
same approach to inputs and assumptions as we use to estimate the fair value of
options granted to employees. For the model inputs, we used the market value of
the underlying common stock, a risk-free interest rate that corresponds to the
remaining option life, an expected option life equal to the remaining life of
the option, and an estimate of volatility based on the market trading prices of
comparative peer companies. As a result of our use of estimates, if factors
change and we use different assumptions, the amount of our stock-based
compensation expense could be materially different in the future.

During the past five years, we have granted options to purchase common stock to
our employees, members of our board of directors, and outside consultants and
have awarded restricted stock to our employees. We granted options to purchase
589,500 shares and awarded 87,500 shares of restricted stock in 2013. During
2012, we granted options to purchase 544,000 shares and awarded 33,000 shares of
restricted stock. During the years ended December 31, 2009, 2010, and 2011 we
granted options to purchase 50,000, 1,467,500, and 401,000 shares, respectively,
and awarded 5,000 shares of restricted stock in 2011. We expect to continue
granting options and awarding restricted stock at levels similar to 2013 and
2012. Accordingly, we expect our stock-based compensation to continue to
increase modestly in the future.

Results of Operations
Comparison of the Years Ended December 31, 2012 and 2013
Year Ended December 31, Change
2012 2013 $ %
(dollars in thousands)
Research and development expense $ 15,822 $ 19,212 $ 3,390 21 %
General and administrative expense $ 8,043 $ 8,731 $ 688 9 %
Interest income
$ 92 $ 30 $ (62 ) (67 )%
Research and development expense increased $3,390,000, or 21 percent, for the
year ended December 31, 2013 compared to the year ended December 31, 2012. The
increase was due to several factors. Personnel costs, including benefits,
bonuses, and stock-based compensation, increased $934,000 primarily due to an
approximate 11 percent increase in headcount for engineering, operations, and
quality assurance employees, combined with increases of $228,000 for stock-based
compensation and $65,000 for bonuses. Clinical costs increased $1,453,000 as we
enrolled 111 patients in our ReZolve2 clinical trial during the year ended
December 31, 2013 and monitored patients in our prior clinical study. Material
costs, including polymer, lasing, and catheter delivery systems, increased
$684,000 and outside engineering costs increased $606,000 as we produced
supplies for clinical enrollment, refined our
49
--------------------------------------------------------------------------------
Table of Contents
manufacturing processes and equipment in advance of commercialization, and
performed feasibility work on our next generation scaffold. Depreciation
increased $205,000 due to the addition of lab equipment and significant
leasehold improvements completed in 2012. During 2013, we also paid a one-time
licensing fee of $100,000 for technology in our product pipeline. Offsetting
these increases, preclinical study costs decreased $620,000 due to the timing of
such work; numerous studies undertaken to test and validate the ReZolve2 device
in 2012 were not repeated in 2013. The remainder of the change in research and
development expenses between years resulted from individually immaterial changes
in lab supplies, quality control, facilities, and outside research expenses.

General and administrative expense increased $688,000, or nine percent, for the
year ended December 31, 2013 compared to the year ended December 31, 2012. A
combination of items contributed to this increase. Personnel costs, including
benefits, bonuses, and stock-based compensation expense, increased $450,000
primarily due to an increase of $365,000 in stock compensation from ongoing
option grants and restricted stock awards and $57,000 in year-end bonuses to
officers under our bonus program. We incurred $268,000 in compensation to our
European-based sales and marketing consultant in 2013 following his engagement
in May 2013. Our audit and tax fees increased $155,000 in 2013 primarily as a
result of a non-recurring tax analysis related to our tax losses. Travel costs
increased $101,000 primarily due to our clinical activities. Offsetting these
increases, legal fees decreased $156,000 in 2013 primarily due to the timing of
intellectual property filings and office actions. The remainder of the change in
general and administrative expenses between periods was due to individually
immaterial changes in investor relations costs, office supplies, depreciation,
insurance, franchise taxes, and other overhead expenses.

Interest income decreased $62,000 for the year ended December 31, 2013 compared
to the year ended December 31, 2012, as a result of lower cash and investment
balances.

Comparison of the Years Ended December 31, 2011 and 2012
Year Ended December 31, Change
2011 2012 $ %
(dollars in thousands)
Research and development expense $ 13,401 $ 15,822 $ 2,421 18 %
General and administrative expense $ 7,695 $ 8,043 $ 348 5 %
Interest income
$ 188 $ 92 $ (96 ) (51 )%
Research and development expense increased $2,421,000, or 18 percent, for the
year ended December 31, 2012 compared to the year ended December 31, 2011. The
increase was due to several factors. Personnel costs, including benefits,
bonuses, and stock-based compensation, increased $768,000 primarily due to an
approximate 30 percent increase in headcount for engineering, operations, and
quality assurance employees. Clinical costs increased $605,000 as we enrolled
and monitored patients in our pilot clinical study and prepared and submitted
applications for our next clinical study. Preclinical study costs increased
$479,000 as a result of continuing costs on our long-term studies and the
addition of new applied studies undertaken to test and validate the ReZolve2
device. Facilities costs increased $347,000 due to rent, utility, and related
expenses from the addition of lab and operating space. Depreciation increased
$259,000 due to the addition of lab equipment and leasehold improvements.

Material costs, including scaffold components and catheter delivery systems,
increased $117,000 as we produced supplies for clinical enrollment and continued
advanced design and delivery system work. Offsetting these increases,
engineering consulting services decreased $59,000 between years due to the
timing of process and design work. The remainder of the change in research and
development expenses between years resulted from individually immaterial changes
in lab supplies and quality control expenses.

General and administrative expense increased $348,000, or five percent, for the
year ended December 31, 2012 compared to the year ended December 31, 2011. A
combination of items contributed to this increase. Personnel costs, including
benefits, bonuses, and stock-based compensation expense, increased $604,000 due
to headcount additions for accounting and IT personnel, an increase of $222,000
in year-end bonuses to officers under our bonus program, and an increase of
$195,000 in stock compensation from ongoing option grants and restricted stock
awards. Travel costs increased $84,000 primarily due to our clinical activities.

Marketing costs decreased $289,000 between years because non-recurring product
and corporate branding activities in 2011 were not repeated in 2012. The
remainder of the change in general and administrative expenses between periods
was due to individually immaterial changes in legal and patent fees, investor
relations costs, office supplies, depreciation, and other overhead expenses.

50
--------------------------------------------------------------------------------
Table of Contents
Interest income decreased $96,000 for the year ended December 31, 2012 compared
to the year ended December 31, 2011, as a result of lower cash and investment
balances combined with lower rates at which we earned interest due to general
economic conditions.

Liquidity and Capital Resources, Going Concern and Management Plans
Sources of Liquidity
We are considered a "development stage" enterprise, as we have not yet generated
revenues from the sale of products. Although we have been researching and
developing new technologies and product applications and we have conducted human
clinical trials of our bioresorbable scaffold, we do not anticipate having a
product available for sale until 2015 at the earliest. Until we generate revenue
from a saleable product, we expect to continue to incur substantial operating
losses and experience significant net cash outflows. We have incurred losses
since our inception in June 1998 and, through December 31, 2013, we had an
accumulated deficit of approximately $201.5 million.

In December 2010 we completed an IPO of our common stock on the Australian
Securities Exchange in the form of CHESS Depositary Interests, or CDIs,
primarily to investors in Australia, the United States, Hong Kong, and London.

We issued 7,727,273 shares of common stock for net proceeds of $75.8 million.

As of December 31, 2013, we had cash and investments of $20.7 million, which
represents the remaining proceeds from our IPO. In order to meet our capital and
operating needs through 2014 and beyond, we will need to raise additional
capital through equity or debt financings. There can be no assurance that we
will be successful in raising additional capital or that such capital, if
available, will be on terms that are acceptable to us. If we are unable to raise
sufficient additional capital, we may be compelled to reduce the scope of our
operations and planned capital expenditures or sell certain assets, including
intellectual property assets. During 2013, we developed our current capital
raising strategy and plan to put significant effort into completing a financing
during 2014 that would provide adequate capital resources to allow us to obtain
data from our clinical trials, apply for the CE Marking, and begin commercial
product sales, assuming we receive the approval to do so.

Cash Flows
Below is a summary of our cash flows from operating activities, investing
activities, and financing activities for the periods indicated.

Net cash used for operating activities during 2012 primarily reflects the net
loss of $23,776,000, offset by non-cash expenses of $3,497,000 for stock-based
compensation, $860,000 from changes in operating assets and liabilities,
$677,000 of depreciation and amortization, and $81,000 of other non-cash
expense.

Net cash used for operating activities during 2013 primarily reflects the net
loss of $27,922,000, offset by non-cash expenses of $4,090,000 for stock-based
compensation, $978,000 from changes in operating assets and liabilities,
$892,000 of depreciation and amortization, and $19,000 of other non-cash
expense.

51
--------------------------------------------------------------------------------
Table of Contents
Net Cash Flow from Investing Activities
Net cash used for investing activities during 2011 primarily consisted of
$5,226,000 for purchases of investments and $883,000 for purchases of property
and equipment. Net cash used for investing activities during 2012 primarily
consisted of the purchase of property and equipment. Net cash was provided by
investing activities during 2013, which consisted of $3,731,000 in net
maturities of investments offset by $1,466,000 in purchases of property and
equipment.

Net Cash Flow from Financing Activities
Net cash provided by financing activities during 2011 comprises the refund of
$422,000 for taxes withheld from our IPO proceeds in the prior year and $33,000
in proceeds from the issuance of common stock upon exercise of employee stock
options. Net cash provided by financing activities in 2012 and 2013 consists of
proceeds from the issuance of common stock upon exercise of employee stock
options.

Operating Capital and Capital Expenditure Requirements
To date, we have not commercialized any products. We do not anticipate
generating any revenue unless and until we successfully obtain CE Mark or FDA
marketing approval for, and begin selling, the ReZolve2 scaffold or one of our
other product possibilities. We anticipate that we will continue to incur
substantial net losses and cash outflows for the next several years as we
continue our development work, conduct and complete preclinical and clinical
trials, apply for regulatory approval to sell our products, expand our corporate
infrastructure, prepare to commercially manufacture and sell our products, and
collect cash from sales of our product(s).

We have incurred losses and negative cash flows from operating activities since
our inception and, as of December 31, 2013, we had a deficit accumulated during
the development stage of $201,509,000. Until we generate a level of revenue to
support our cost structure, we expect to continue to incur substantial operating
losses and net cash outflows. While we had cash and investments totaling
$20,721,000 as of December 31, 2013, we do not believe these resources will be
sufficient to meet our operating and capital needs through 2014.

The above circumstances raise substantial doubt about our ability to continue as
a going concern. We are placing significant effort into completing a financing
during the first half of 2014 that would provide adequate capital resources to
allow us to obtain data from our clinical trials, apply for the CE Marking, and
begin commercial product sales, assuming we receive the regulatory approval to
do so. While we are actively engaged in discussions with potential parties to a
financing, there can be no assurance that we will be successful in raising
additional capital or that such capital, if available, will be on terms that are
acceptable to us and are not overly dilutive to our current security holders. We
have developed contingency plans that we would implement in the absence of a
financing or in the event a financing were not sufficient to cover our planned
needs. These contingency plans primarily include reductions in costs, narrower
product development efforts, and reductions in headcount. We would implement our
contingency plans in the second quarter of 2014 if our financing efforts have
not progressed as we envision. In addition, our forecasts and contingency plans
for the period of time through which our financial resources will be adequate to
support our operations or reduced operations are based on assumptions that may
prove to be wrong and we could utilize our available capital resources sooner
than we currently expect. If we are unable to raise sufficient additional
capital on the timeline that we plan, in addition to implementing our
contingency plans, we may be compelled to sell certain assets, including
intellectual property assets. Even if we are able to raise additional capital,
we may never become profitable, or if we do attain profitable operations, we may
not be able to sustain profitability and positive cash flows on a recurring
basis.

Because of the numerous risks and uncertainties associated with the development
of medical devices, such as our bioresorbable scaffolds, we are unable to
estimate the exact amounts of, or timing of, capital outlays and operating
expenditures necessary to complete development, continue ongoing preclinical
studies, conduct human clinical trials, successfully deliver a commercial
product to market, and collect on our trade receivables. Our future funding
requirements will depend on many factors, including, but not limited to:
† the time and effort it will take to successfully complete testing of the
ReZolve2 scaffold and our next generation scaffold;
† the scope, enrollment rate, and costs of our human clinical trials;
† the time and effort it will take to identify, develop, and scale-up
manufacturing processes;
† the scope of research and development for any of our other product
opportunities;
† the cost of filing and prosecuting patentable technologies and defending
and enforcing our patent and other intellectual property rights;
† the terms and timing of any collaborative, licensing, or other
arrangements that we may establish;
52
--------------------------------------------------------------------------------
Table of Contents
† the requirements, cost, and timing of regulatory approvals;
† the cost and timing of establishing sales, marketing, and distribution
capabilities;
† the cost of establishing clinical and commercial supplies of our
products and products that we may develop;
† the effect of competing technological and market developments; and
† the cost and ability to license technologies for future development.

Future capital requirements will also depend on the extent to which we acquire
or invest in businesses, products, and technologies, although we currently have
no commitments or agreements relating to any of these types of transactions.